A recent article by Life Insurer TAL explored the payment of Life Insurance claim proceeds to a child or children under the age of 18 which highlights the significance of considering estate planning as part of designing a personal insurance program. The surviving legal guardian of the child may have the the ability to make financial decisions on behalf of the child which needs to be considered in the context of the deceased parents wishes.
TAL’s technical experts’ views to some commonly asked questions are as follows:
If an insured passes away, and their children are still under the age of 18, how does the payment to the children occur?
TAL would normally pay the child’s surviving legal guardian on trust for the benefit of the child – the money would need to be used for the child’s education, maintenance and advancement in life. The surviving legal guardian would also need to sign TAL’s standard trust deed for these purposes and open a bank account in the name of the trust to receive the money.
Is the child able to receive the cash funds as a direct payment?
No. As per the answer in question one, the surviving legal guardian would also need to sign TAL’s standard trust deed for these purposes and open a bank account in the name of the trust to receive the money.
Would a testamentary trust need to be created?
If the children are nominated beneficiaries and the nomination is valid, the benefits will be paid as per the answers to question 1 and 2. Testamentary Trusts (TTs) are established on the death of the life insured and are created via the deceased’s will. If the insured wants to use a TT and use their superannuation benefits to seed the trust, they will need to nominate their Legal Personal Representative (LPR) with a direction to pay the TT via the will.
Does the insurer create the TT?
No, as above.
Would the insured need to instruct a Solicitor to create a will with provisions for a TT? If this is the case, does that mean that the defined nominated beneficiary is revoked on the basis that they are under the age of 18 and the monies payable form part of the Estate?
Only if the insured wanted a TT – as above, if the insured wants to use a TT and use their superannuation benefits to seed the trust, they will need to nominate their LPR with a direction to pay the TT via the will.
It is important to note that superannuation with a valid nomination is a non-estate asset and is not dealt with via the will.
In conclusion, when purchasing Life Insurance policies, planning needs to be undertaken in the event that minors are the beneficiaries. Planning will increase the probability that the deceased’s wishes for the financial well being of their beneficiaries are met.
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The information provided in this article is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement).
Source: TAL Life Insurance proceeds paid to minors